Industrial Profits in China Show Strong Growth Amid Domestic Challenges

By Qiaoyi Li and Ryan Woo

Beijing (Reuters) – China’s industrial profits grew faster in July, buoyed by high-tech manufacturing, despite sluggish domestic demand affecting the country’s economic recovery.

Profits in July jumped 4.1% year-on-year following a 3.6% rise in June, according to data from the National Bureau of Statistics (NBS) released on Tuesday.

For the period from January to July, profits expanded slightly faster at 3.6%, compared to 3.5% in the first half, suggesting some hope for improving momentum despite weak factory output, exports, and banking lending figures earlier this month.

Zhou Maohua, a macroeconomic researcher at China Everbright Bank, remarked, “The mild expansion in industrial profits showed that domestic macro policies are taking effect” as the factory sector undergoes a transition and upgrade.

The high-tech manufacturing sector, including lithium-ion batteries and semiconductors, led the earnings growth with a 12.8% rise during the January-July period.

However, NBS statistician Wei Ning pointed out that “domestic consumption demand remains weak while the external environment is complex and volatile,” indicating the need for additional efforts to stimulate domestic demand.

Declining shipments last month raised concerns over the export-driven recovery and hinted at frail domestic demand.

Notably, July bank loans recorded their first contraction in 19 years, according to data from the central bank.

Battery giant CATL reported faster profit growth in Q2, but saw a more significant revenue decline as electric vehicle sales slow in China’s largest auto market.

Faced with weak demand and a prolonged housing downturn, along with employment concerns, Beijing aims to shift its stimulus focus towards consumption. Premier Li Qiang emphasized this commitment during a cabinet plenary session earlier this month.

State-owned firms experienced a 1% rise in profits over the first seven months, while foreign firms enjoyed a 9.9% gain, and private-sector companies saw profits increase by 7.3%, as reported by the NBS.

Industrial profit numbers include firms with annual revenues of at least 20 million yuan ($2.80 million) from their main operations.

($1 = 7.1395 Chinese yuan)